FSBIOE: Fueling Growth While Testing the Brakes

Research evidence excerpt

FSBIOE: Fueling Growth While Testing the Brakes

J P M O R G A N Latin America Credit Research

29 June 2026

Neutral

FSBIOE FSBIOE

Fueling Growth While Testing the Brakes

EM Latin America Corporate

We view FS’s decision to proceed with its fifth plant as an aggressive step, as Research

it will be the first time the company manages two construction projects

Florencia Palacios ACsimultaneously. The expansion, together with the new dividend distribution,

(1-212) 622-1129

is expected to pressure the balance sheet through elevated capex and working florencia.x.palacios@jpmorgan.com

capital needs, at a time when FY27 EBITDA will be weaker due to lower J.P. Morgan Securities LLC

ethanol prices. Under our calculations, this should result in negative FCF of

R$2.7 billion in FY27 and a temporary leverage spike to 5.1x. We see a

deleveraging path once the plants ramp up and FCF turns positive in FY28,

but the pace will depend largely on the ethanol price environment. Rating

agencies may look through the temporary spike, but weaker credit metrics,

simultaneous execution risk, and continued dividends could test their

tolerance. The market reacted negatively, with bonds dropping by almost 4

points, which we view as fair given the change in FS’s balance-sheet trajectory.

With the negative impact now largely priced in, we maintain our Neutral

recommendation across the curve.

• The company announced it will move forward with its 5th plant, with

construction set to overlap with CNP, which is already under

development. The new Querência plant will be very similar to CNP, FS’s

4th plant, with capex of R$2 billion, corn crushing capacity of 1.3 million

tons, production capacity of 580 million liters per year, and WK investment

of close to R$1 billion to secure corn.